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Pigouvian Income Taxation

Author

Listed:
  • Lassi Ahlvik
  • Matti Liski
  • Mikael Mäkimattila

Abstract

This paper develops a mechanism design approach to study externalities and re-distribution. The mechanism screens individuals’ social weights to strike a balance among broad distributional objectives, incentives to work, and incentives to reduce externalities. The welfare-optimal allocation can be decentralized through income taxation, defining income-dependent externality payments. Two applications use individual-level administrative data on incomes, pollution measures, and financial burdens to demonstrate how population characteristics shape the optimal policy on carbon emissions.

Suggested Citation

  • Lassi Ahlvik & Matti Liski & Mikael Mäkimattila, 2024. "Pigouvian Income Taxation," CESifo Working Paper Series 11174, CESifo.
    • Handle: RePEc:ces:ceswps:_11174
    as

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    References listed on IDEAS

    as
    1. Julie Anne Cronin & Don Fullerton & Steven Sexton, 2019. "Vertical and Horizontal Redistributions from a Carbon Tax and Rebate," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 6(S1), pages 169-208.
    2. Kaplow, Louis, 1989. "Horizontal Equity: Measures in Search of a Principle," National Tax Journal, National Tax Association, vol. 42(2), pages 139-54, June.
    3. Musgrave, Richard A., 1990. "Horizontal Equity, Once More," National Tax Journal, National Tax Association, vol. 43(2), pages 113-22, June.
    4. Kaplow, Louis, 1989. "Horizontal Equity: Measures in Search of a Principle," National Tax Journal, National Tax Association;National Tax Journal, vol. 42(2), pages 139-154, June.
    5. Musgrave, Richard A., 1990. "Horizontal Equity, Once More," National Tax Journal, National Tax Association;National Tax Journal, vol. 43(2), pages 113-122, June.
    6. Emmanuel Saez, 2001. "Using Elasticities to Derive Optimal Income Tax Rates," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 68(1), pages 205-229.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Pigouvian taxation; optimal income taxation; inequality; climate change;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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